U.K. Climate Adviser Says Low-Carbon Mix Saves $150 Bln

May 23 (Bloomberg) -- Britain, under pressure to build new
power stations, could save as much as 100 billion pounds ($150
billion) through 2050 by spending on wind, nuclear and carbon
capture rather than gas, the government’s climate adviser said.

Investing in low-carbon power is a “low-regrets strategy
with potentially significant benefits,” a report from the
Committee on Climate Change shows. “This could result in cost
savings of 25 billion pounds to 45 billion pounds relative to a
focus on investment in gas-fired generation,” or more than
double that with higher gas and carbon prices, the group said.

The U.K, seeking to spur 110 billion pounds of investment
in new electricity plants and grid upgrades this decade, is
debating an energy law in parliament. Government pledges to stem
increases in power prices, curb fuel imports and cut emissions
may founder should ministers fail to provide clarity to
investors on the long-term returns from clean-energy production.

“Uncertainty about development of the power system beyond
2020 threatens fundamentally to undermine the electricity market
reform,” the group said, recommending that ministers set a goal
to reduce carbon from power output by 90 percent by 2030, and
publish strategies to develop offshore wind and carbon capture.

“As long as we are in a carbon-constrained world, you have
to decarbonize the power system,” David Kennedy, the
committee’s chief executive officer, said by phone, noting that
investors must spend now on projects that will come online after
2020. “There’s a clear benefit in building this early rather
than a stop-start approach.”

Carbon Goal

Vestas Wind Systems A/S and five other power-generation
manufacturers wrote to ministers in March saying the U.K. risked
falling behind European peers by stalling on a carbon cap. While
a decision on a target isn’t slated until 2016, lawmakers Tim
Yeo of the Conservative Party and Barry Gardiner of Labour have
drafted a bill amendment that would set a goal sooner, and will
introduce it when the energy law returns to parliament June 3.

“If the government wants to secure the maximum economic
benefits of its energy bill, it must listen to the advice of its
own independent advisers and introduce a target to clean up the
power sector by 2030,” Yeo said in an e-mailed statement. He’s
chairman of the cross-party Energy and Climate Change Committee,
separate from the independent Committee on Climate Change.

The savings projected in today’s report would result from
investment through the 2020s that would raise the typical
household power bill by 20 pounds in 2030, with the benefits
accruing through to 2050, according to the group. The estimate
is based on a carbon price of 32 pounds a ton in 2020 -- 10
times current prices -- and 76 pounds in 2030, with gas prices
seen rising to about 70 pence a therm from about 63 pence.

Limited Savings

Even if gas prices slump, the cost savings from investing
in gas-fed plants would be “very limited,” the committee said.

The government last year laid out plans to build as much as
26 gigawatts of gas-power units by 2030, raising total gas-plant
capacity to 37 gigawatts. Kennedy said his committee envisages
about 30 gigawatts of gas plants by then, which would be used to
balance peaks and troughs in output rather than round the clock.

Generation from renewable sources including solar and
offshore wind is intermittent, requiring alternative sources
such as gas to maintain supply when output falls short.

Offshore wind relies on government support because it’s
more than twice the cost of gas- and coal-fueled power output.
Generators receive payments through the Renewables Obligation
subsidy and are due to receive guaranteed energy prices when so-called contracts for difference come into force next year.

Wind Contracts

The first contracts for offshore wind should guarantee
prices of 145 pounds to 175 pounds a megawatt-hour, coming down
to a range of 110 pounds to 145 pounds for contracts signed in
2018, Kennedy said. For onshore wind, prices should start at
about 105 pounds before coming down to 95 pounds, he said.

The contracts, part-funded by consumer energy bills,
guarantee a long-term price for generating power. If the market
rate is lower, the government ensures the generator gets the
difference. If the price exceeds the tariff, producers return
money to consumers.

The government should raise the levy that utilities are
allowed to place on bills to 10 billion pounds in 2030 from the
7.6 billion pounds planned for 2020, Kennedy said.

The U.K. will consider the committee’s recommendations and
set out guaranteed prices for renewable energy in July, the
Department of Energy and Climate Change said in an e-mailed
statement. “We agree with the Climate Change Committee on both
the need to invest in a portfolio of low-carbon technologies and
the need to reduce our dependence on imported gas,” it said.